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on the all-new cadillac ats. parts makers are back, qualcomm, sky works all looking good. i've got to tell you, i think they circle back to sears and yes, broadcom. i'm jim "mad money." i'm jim cramer. i will see you tomorrow. good evening, everyone. i'm larry kudlow. this is "the kudlow report." shocking .1% drop in gdp now has team obama blaming republicans for the fiscal cliff and the sequester spending cuts. but you know what? the private economy did well up 3.4%. it was the government economy that fell. i would like to see us finishing the spending cuts of the government. shrink the government more. grow the private economy by 5%. that is my vision.

now there is more bad news for new jersey senator bob menendez as the fbi raids the offices of one of his close financial backers. will it present key evidence in the alleged prostitution scandal surrounding the senator. it's all unconfirmed but the potential legal fallout is huge. israel takes no chances. the air force launches two air strikes in syria preventing the assad regime from transporting chemicals and weapons of mass destruction to hezbollah. if the red line is crossed israel will attack again. we cover it all. "the kudlow report" begins now. first up we learned today the fourth quarter gdp fell slightly, much to everybody's surprise. so the white house is blaming republicans for the fiscal tax cliff and the spending sequester

which i think is hilarious. they invented the sequester. we have had tax, spend and regulate policies for four years. why not try something different. let's talk about it with our powerhouse panel. jared bernstein, center on budget and policy priorities. senior fellow. doug holtz-ekin, peter suderman and james freeman, assistant editor for the wall street journal. james, i'm amoused right off the top. team obama starts attacking republicans first of all for the budget cutting sequester which they invented. second of all, for the fiscal cliff which they also invented. how silly is this? there is nothing serious about it at all. >> here we are. this is three years of big spending obamanomics. it's a terrible recovery. not what we need to create jobs. >> worst recovery since 1947.

spending, taxing, regulating. we'll get into details. this report is not as bad as it's made out to be. >> i agree. >> the basic thrust is why not try something different? 2% growth is lousy, the worst since 1947 h. why not try something different? why not favor the private sector? instead of the government? >> i have a good idea. stop setting fiscal traps for yourself and a getting all excited when you defuse the bomb you set. i agree with your silliness analysis. it's just as silly to say, oh, that's their fault. the white house was responsible. these folks have conspired to set the fiscal traps and defused them at the last minute to no avail as was said about the economy. i will say this. look, you're talking about an $85 billion is he quester that could kick in. i don't think any of us think that would be a good idea. >> it will only be $60 billion.

we are five months into the year. total spending is $3.8 trillion. total debt close to $17 trillion. doug, look, let's get some ration rationality. i know the sequester isn't the way to do it but there is never an efficient way. nobody wants to cut spending. harry reid yesterday on the senate floor said let's defer the sequester and have tax increases instead. why not, doug? spending as a share of gdp should go down. if it does the private economy will go up. >> look, we talk all about taxes all the time. the reality is taxes have gone up, down and sideways and spending has only gone up. we are paying the price. i concur. we have to get future spending under control. i'm not a fan of the sequester. it's not good policy. its only virtue is to force better policy which it hasn't done so far. i would like to see that. i don't worry about the sequester as macroeconomic

policy. i think the lesson of today is simple -- >> do you think -- >> this is the lesson. we are growing too slowly. when you are at 1.5, 1%, bad things happen whether it is traps or fukushima or whatever. you get bounced into negative territory. the b problem is slow growth. >> are you in favor of the sequester taking effect? >> no. it would be much better to replace the sequester. >> i agree. >> wrong answer a, doug. totally wrong. >> it was the right answer. it was a good keynesian answer. >> a big government, big spending answer. >> i want more cuts, larry. let me finish. replace the sequester with more cuts. >> take what you can get. peter, first of all, let me make a factoid. the big drop in military spending accounted for a lot of the weakness. last quarter it had a huge increase. this quarter it had a drop. peter, when you look at the private economy, consumers,

housing investment, business investment, it did well. it actually rose 3.4% at an annual rate. in other words while the government economy was going down the private economy was actually going up. i don't want to lose that thought because i think we can cut the government economy more. what's your take? >> i think that's certainly correct as far as bad gdp reports go this was probably a pretty good bad gdp report. it's not the kind of gdp report anybody really wants to see. the overall focus here on gdp and measurements when we are talking about economic growth kind of naturally advantages government spending. because the way we measure gdp says that any time we are spending money on hiring a government worker, that's contributing to gdp. if we are hiring folks in the private economy, that's not necessarily contributing to gdp if they are not producing a product that b can be sold immediately.

there is too much focus on government spending. >> listening to doug, he wants more government spending -- >> larry, come on. >> i have to go to the wall street journal here. i need support, james. things like lower spending, tax reform for businesses. things like entitlement e reforms. the trouble is none of that's on the table. james, i will take spending cuts when i can get them. >> exactly, larry. >> go ahead, james. >> that's why republicans learned to love the sequester. president obama is giving them a menu of bad options. this is the one modest step, baby step toward reform, toward fiscal sanity that tells private markets maybe there is hope that the government will pull back. maybe if you want to think optimistically you make the case for tax reform, regulatory reform to get the growth up. tax reform to the president means more money for the government. you take spending reforms where you can get it.

>> let me make this simple. i consider much of what's been said so far to be ideological. you said there would be no math on this but c plus i plus g. we all believe that. in an economy that has -- >> wait a minute. >> in an economy with an output gap. >> hang on. >> if you cut government spending we will shrink. >> consumption plus investment is 3.4% at an annual rate. >> great. >> it did fine. it was the g. you had one-off trade deficit issues and one-off inventory issues. the problem was the g. >> i don't disagree, larry. >> i want to solve for g. >> you want to cut g more. >> i do want to keep cutting g more. outside the military, no gdp effect at all with with g. doug -- >> larry, i want to say something about that. >> transfer payments have no effect on gdp. >> that's where we should go.

>> they should be cut and pared down. it doesn't solve the whole problem, dougie. but i will give you chance to redeem yourself. if we follow through on the sequester we could move on to better policy and get the private economy growing at # 5%. >> i'm not disagreeing with james and you about if this is what we end up, we have to get serious about cutting spending. i want more than we are getting now. i think the important thing is that you're too optimistic about the private economy. if you look at q 4 over q 4 growth in household, 1.9. in business investment, 4.3. these aren't numbers that constitute a recovery. we are wobbling along. i'm not worried about the government economy being bad and the private economy being good. the private economy is not good. >> i'm putting facts in this discussion. i want to go back to peter. i can go on from here.

if i have pro growth tax reform i'm interested in large and small tax orm. with entitlement reform then we can get the kind of private sector growth. in other words, i don't hear anyone talking about that. jared bernstein wants to preserve the spending. >> we have already cut $1.5 trillion. >> no, no. stop, stop. stop. jared, stop. we have not cut anything. for the record, there is a promise -- budget control act says we promise honest really like never before that in 2018 we'll spend less. it will never happen. it's not a cut. it hasn't happened. >> it's a cut relative -- >> be honest about that. >> let me hear from my libertarian friend. peter, what would you have us do? >> the biggest worry about the sequester is it won't take effect. if you can get spending cuts you can get some spending cuts. i say let's do it.

they may not be the ideal spending cuts, but let's take them and focus on policies to get the private sector -- >> absolutely. >> the reason -- >> larry, please. >> tutor doug and jared. what you just said is so spot-on, peter. i'm so proud. you have definitely already won the nobel prize tonight. go ahead, jerry. >> the reason the economy contracted in the fourth quarter of last year was because defense spending went down so far. the reason everybody was wound up about the fiscal cliff was too quickly cuts in deficit jam us into recession. that's a widely publicized finding from cbo to independent analyst. your guy's formula is for a 2013 recession. i know you like spending cuts. this isn't the time. >> james -- >> when is the time? >> right. who are the keynesians?

as much as i respect jared we tried it in 2009 and 2010. >> it helped a lot. >> it didn't work. that's why this is the lowest recovery on record. >> americans understand every dollar will be taken at some point from them in taxes or inflation. >> what do you think is going on in europe? >> they are in private risk taking and people willing to invest. >> what do you think is going on in europe. >> before e we said how great the economy was in the fourth quarter, yes, amid the bad news it was a bright spot. but the great income number, a lot of it was because of the tax trap the president demanded with income getting pulled into the fourth quarter. >> this is a great point. i want to close on this point. this is too good. james opens up a great spot. you have to love this. dividend income in the fourth quarter ahead of the obama tax

hike, dividend income 85.5% annual rate. 85.5%. people brought forward their dividend income to escape the tax trap. that tax trap was set by the white house. they are setting a spending trap. don't fall into the spending trap. i have to get out of here. you're all great. doug, james, peter, jared, we settled the economy. is facebook making enough money to satisfy critics? julia borsin joins us live with facebook's just released numbers. later in the show, israel takes matters into its own hands and launches two air strikes into syria. jerusalem is taking no chances as it tries to keep assad's weapons of mass dtruction out of terrorist hands. we have the latest on this developing story. please, folks, don't forget. free market capitalism is the best path to prosperity.

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facebook facebook reports better than expected earning and revenue but the stock falls anyway. julia borsten is here live from

los angeles to explain it. good evening. >> hello to you, larry. facebook did beat on the top and bottom line but the real headlines were all about mobile. zuckerberg talked about the fact that for the first time facebook's daily mobile users exceeded desk top users. facebook says the shift to mobile has been challenging but is a massive opportunity. in the quarter, mobile ad revenue doubled from q3 to q4, now 23% of facebook's total revenue. the big question is why did the shares plummet? the stock has run up by more than 40% over the past three months. investors could have been hoping for a bigger beat. i asked david ebersman about a decline in gap operating margin. he said they didn't include stock compensation preipo. ebersman he said he thinks the company is strong and days for making money on mobile in

particular. zuckerberg stressed facebook's growth will come from ads as they improve targeting and introduce new formats while they do also invest in developing gifts and grass search over the long term. zuckerberg talked about facebook is investing in long-term growth rather than maximizing profits for now. larry? >> i'm no expert. you know more than i do. if the mobile phone activity is going up and ads are going up might people not take a second look at the facebook stock and buy it tomorrow after this little sell-off in moonlight hours? >> well, i think you're touching on something here. this has been a volatile stock. after earnings came out the stock plummeted 7%. then it rebounded by more than half. over the past three months since the last earnings report there's been a big sentiment shift. we saw analysts get on board,

raise estimates and indicate confidence in the potential in mobile. facebook is showing it can deliver but we are not going to see -- >> to the big question facing more college students and their parents. will they be able to pay back student loans? later on the senator bob menendez prostitution scandal is heating up. even jay leno is taking notice. watch this. >> the fbi investigating bob menendez for allegedly soliciting dominican prostitutes. once again foreign workers doing jobs americans don't want to do. the fbi said he agreed to pay $500 but then only gave them $100. he had sex like a democrat but

is a fiscal conservative like a republican. that's what we need in washington. more men like that. a little different when they're spending their own money, huh? ♪ let's go. ♪ ♪ ♪

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total outstanding student loan debt now around $1 trillion. new graduates are facing nearly $24,000 of debt on average. it is a problem not just for them but for all of us. cnbc's senior correspondent

scott cohen joins me now. good evening. >> good evening, larry. it is a big problem. enough so now that lentders and credit rating agencies are starting to look at the potential impact on a whole generation of borrowers. the ones who are supposed to have spending power and the early signs aren't good. a new study from transunion. average debt more than $23,000. up 30% in the past five years. more than half of all student loans now in deferral including payments deferred while the borrower is in school but also borrowers who get deferrals for financial hardship. delinquencies are up from five years ago. more than twice the delinquency rate for mortgages and more than ten time it is rate for credit cards. the problem isn't the level of student debt only. it's a that the job market is the worst in more than a decade for new grads. 50% unemployed or underemployed. >> that's a brutal report. my only thought listening to you

and the numbers, are we headed for bailout nation? is this a taxpayer bailout? >> it looks bad. if you compare it to the housing market we are talking about a trillion worth of debt versus $6 trillion in the mortgage market. the bigger problem is the macroeconomic impact. are you going to have a generation of people just coming out of school starting out behind the 8 ball and what does that mean for the economy? those are people supposed to have spending power. >> now there is a continuing scandal around a close associate of new jersey senator bob menendez. a late night fbi raid casting a new spotlight on allegations the senator had sex with underaged prostitutes in the dominican republic. the latest is next on "the kudlow report." all stations come over to mission a for a final go.

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welcome welcome back, everyone. the plot thickens in the case of an unconfirmed sex scandal involving new jersey democratic senator bob menendez. fbi agents raided the office of a prominent south florida doctor

last night who was a big donor to menendez and the same doctor has been identified by news organizations in connection to the as yet unverified accusations that senator menendez purchased prostitutes and attended sex parties in the dominican republic. it's unclear if the raid was in connection with allegations or whether the doctor is just being investigated for not paying taxes. we reached out to the senator's office today and were given a statement. the doctor is a friend and political snorter of senator menendez for years. senator menendez has traveled on mr. melgen's plane on three occasions. all of which were paid for and reported appropriately. allegations of engaging with prostitutes are manufactured by a politically motivated right wing blog and are false. end quote from senator menendez. joining us now, david martasco

from the daily collar and former u.s. attorney joe degeneva. joe, it was your story. we have been covering it with you. what's your quick take on this? the fbi now hotter and heavier into the middle of this menendez case. >> i have a source inside the fbi who tells me that this raid was connected to the doctor's connection to menendez. this was not just a tax matter. if it had been it would have been disposed of differently. we have a clear connection. the problem for the senator will get bigger before it gets smaller. check the daily collar overnight. we'll check on a second underaged girl we can now discuss. a specific person who alleges she had sex with the senator when she was younger than 17. >> did she give testimony to the fbi? >> we are working on that now. i'm not sure at this moment in time. we can nail it down by tonight. we have dates and places and very specific things about the

escort service involved as well. >> welcome back to the show. you have been through a few of these investigations. the doctor will be investigated and they will get records, phone, medical, financial, call girl services, the names of ma damns, notebooks, e-mails, text messages, of some kind about menendez. how does this work, joe? you have been through a few of these. >> the reason they didn't issue a subpoena to the doctor is they were afraid he would destroy documents. they got a search warrant from a federal judge. you get it by the fbi agent going to an assistant u.s. attorney, showing him they have probable cause to search which is the same amount of evidence you need to arrest or indict someone. they got a search warrant and went in to seize books, records, computers, computer documents, printouts, financial records. diaries. all sorts of other things. there is no doubt that this is

related to the already published reports about things that allegedly happened in the dominican republic. senator menendez has been in the sights of the fbi since chris christie was the u.s. attorney in new jersey and subpoenaed documents about a land transaction he was involved in. soy just can't imagine at this point that there is not going to be a long, drawn out grand jury. my guess is that the bureau has already been to the dominican republic and has interviewed underaged prostitutes. >> joe, do you think the fbi would have done this, gotten warrants, gone in there in the dead of night if this was a tax matter? >> no. they would not have. tax matters are handled very simply by the irs. the bureau wouldn't be involved in a tax matter. >> right. that was what i was thinking. david, you make an interesting point that so far harry reid has not really put senator menendez

in the chair of the senate foreign recessi foreign relations committee. that could be because john kerry was cleared as secretary of state or it could be -- as i think you are thinking -- that reid doesn't want to risk it until the dust clears. why isn't menendez head of the foreign relations committee officially? >> first of all, it requires an upgrade in his security clearance sfa us the. one thing they ask is if you have liabilities with foreign interests, exposure to blackmail. these are things that can blow up in the face of the democratic leadership and the senate as a whole. harry reid would be stupid to take that kind of risk. if anything, the timing of the fbi raid may have been encouraged by senator reid and the democratic leadership. they want to get it resolved as quickly as possible so that committee, the senator foreign relations committee can do its job. >> menendez said in his statement that he rode the

plane -- his buddy's plane three times. david, is that new information? i thought it was one time. three times, that's a third party transaction. this is the part that troubles me. >> we don't know where the trips were. i can tell you we'll report it in greater detail. we have reviewed over 400 f.a.a. records another 58 trips to another airport in the dominican republic. we don't know if senator menendez is copping to having been on the plane between washington and newark. we don't know what he's admitting to. he's been cagey. regarding the disclosures and the ethics committee either he accepted the travel as a gift regarding his official business

in which case he would have to have permission from the ethics committee. there is no record of permission. he could have gotten the travel as a personal gift from a friend in which case he would have had to report it on his senate financial disclosures. he didn't do that. or it could have been another transaction involving a campaign committee for the democratic senator committee. those would have to be reported to the f.e.c. i have found no report. he has more explaining to do. >> quickly take us out. what happens next, joe? >> they will be spending time reviewing records. indeed, they have to have an informant who is probably giving them the names of other people who will be given subpoenas. those people will be called in. if there are under aged prostitutes they would have been interviewed, perhaps brought into the grand jury. whether they are in the dominican republic or the united states. again a review of the records and see if they can cut a deal with the doctor and get him to

testify. ultimately, he would not be the ultimate target. he would be someone they would want to turn. they will work on putting pressure on the doctor, seeing if they can get him to cooperate. >> joe, thank you very much. david, thank you very much. we'll switch gears now. the stock market rally paused today but did the fed give investors anything to worry about? we'll look into the fed, your money and stocks next up. [ male announcer ] it's simple physics...

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well it's good... good for me. what do you think? geico. fifteen minutes could save you fifteen percent or more on car insurance. in in today's meeting the fed downgraded the economy equalling q4's gdp drop an economic pause. that means they're going to keep on pumping. certainly in my lifetime and maybe forevermore. here is our great friend randy crosner, a former federal reserve governor. now from the university of chicago's booth school of business. randy, do i have the story right? the fed was a little bit more pessimistic. there is no question they will keep pumping. is there? >> it's clear they will continue on this path of buying treasury and mortgage-backed security. they seemed to suggest the pause in the economy was due to one-off factors last quarter.

i'm not sure they think the economy will continue at that low level. i think they think it will pick up a bit. >> do you think there is a chance the fed would raise the target rate which is 0% this year? >> i can't see that happening. i never say never after what i saw in washington. i just don't see that happening. >> let me follow up on that same line of thinking a little bit. do you think, randy, the fed would reduce its bond purchases? they are doing $85 billion a month. roughly half and half between mortgages and treasury. do you think the fed would slow it down this year? >> i think there is a reasonable possibility of that because if the economy starts coming back a bit, we saw signs that the private sector economy was doing okay. you mentioned that earlier. as that continues on we don't have other shocks that come. probably will have shocks that come. we could start seeing the unemployment rate start to move

down. the economy get better. they may start pulling back a little bit. i don't think they will end it soon. they could pull back. >> there is a chance they may pull back in the bond purchase. i will note, as you know, long e-term interest rates have been creeping up. they are not rocketing upward but they have gone in the last bunch of months from 1.4% to 2%. you probably saw this. i want to ask about this. this is an inside federal reserve study. if and when bond prices fall -- really fall because the fed's got to take up the short term rates. if that happens the estimate from the fed is that the fed will lose $125 billion on its own portfolio. that could break a commercial bank. >> but not the fed. the fed has the privilege, unlike a commercial bank, of literally printing money. that what would mean is for a short period of time the fed would not be returning any

surplus back to the treasury, but it wouldn't impair operations. it could go along. >> let me get this right. a little bit about dog chasing tail here. if the fed slows down bond purchases and the fed raises interest rates as they must at some future point, their response is to print more money to pay back the treasury because of the hole they dug into. if that isn't dog chasing tail i don't know what is. >> they don't need to print the money to make up for it. they will start to make money again and the central bank isn't run to maximize profits. it's trying to balance the different challenges the economy has. i don't think that's any potential loss on the portfolio will be a driving force of monetary policy. >> it is going to be a political issue. a $125 billion issue or worse. i don't know how they crawl out

of the hole. randy, you're always straight with us. thanks for your commentary on the fed. let's talk stock markets, take a break from recent trends. all major indices in the red today. question is will the dow cross 14,000? and will the s&p hang on to $1,500? here is stephanie link of the street. coportfolio manager of jim cramer's charitable trust. we welcome back jason truner, managing part at stregis. welcome back. jason, disturbing signs in today's sell-off. transports got slammed. small caps got slammed. some people are asking if there isn't a correction coming. maybe we won't get to 14,000 on the dow. >> i think the way the fed is operating it's almost certain we'll get to 14,000 on the dow. wouldn't be surprising to have a pullback. you have had one of the strongest januaries, i think

since 1997. about 450 stocks of the s&p a 500 are up e meaning fulfully i january. technically the market is strong. wouldn't be surprising to give it back but the fed is giving the all clear sign as mr. kroszner suggested. >>le i would add earnings are beating -- not huge but instead of 3% according to bob pisani they are 5%. sales revenue also beating -- not huge but beating. you have easy money. how powerful is that in the context of the potential correction? >> everybody want as correction. we were talking about it off line. i'm not sure you will get this big massive correction. more importantly you have underlying fundamentals in the u.s. economy, okay. running 2%, 2.5% in terms of gdp. we got good numbers, gdp, pending home sales, case

schiiler. overe seas, easy money is happening there as well. china, industrial profits up 17%. brazil is lowering, india is lowering. you have a strong case that the global economies are continuing to improve. you have earnings better than expected. valuations aren't stretched. >> you buy the pullback. that's what you're arguing. >> yes. i have to tell you this. we ended last year with the lowest amount of cash on the portfolio. we are up more because we're taking profits. you want to buy the dips. >> jason, i am in a bullish mood. i wouldn't be surprised to have a correction. this debate we had in the first segment about the spending cuts in washington called the sequester. do you think if these across the board spending cuts are implemented it is bullish or bearish for stocks?

>> i think there is policy fatigue among clients. they are tending to view washington as a kabuki dance that doesn't have a big impact on what the underlying fundamentals of the economy are. if anything, it probably prompts the fed to remain easier longer. if i take any issue with what ms. link said the economy is weaker than it's been. it's almost distinction without a difference. earnings looked like it is up. the s&p up 3.5. the sequester, i think we'll go off the sequester cliff. i don't know if that's a term. it's likely given republicans and the president are now. i'm not sure it will make a lot of difference. >> we'll have it? >> i think we're going to have

it. cut spending in our lifetime. >> as stephanie pointed out there is a lot of people looking for a dip. so i think if you get a dip on that it will be short-lived. i'm trying not to make it too complicated. it really wound up being about liquidity. >> you're a bull. >> i'm talking to a bull. >> you're a bull. i have two bulls here. what would make you not a bull. >> i am a bull. >> what's out there? >> jobs. we have seen a gradual improvement. i think that actually is where we could see upside to gdp. if we continue to see the rate we are going at. housing. it's been a champ. i don't see anything really derailing that story. >> buy the home builders? >> buy the banks. i think you could still buy the home centers, home improvement stores. you haven't had hurricane sandy

rebuild. those are the things i'm watching carefully that could -- >> given worldwide easing. usa, china, japan which i approve of. terrific stuff. do you buy industrials, commodity stocks? >> yes. >> you would? >> well, wait. we had been buying industrials and mining stocks for the last six months. it worries me that everybody likes industrials now. the interesting thing is on the earnings report they are crumby. guidance is crummy. look at caterpillar. perfect example. i like the group. those are definitely poised -- could be poised to have a correction. those are the ones to buy up. >> questions some people are asking today. i will ask it of you. after today's gdp number which is distorted and the private sector was better than we think. it was the government sector that fell. a question. what's the probability of a recession? maybe we are all too ebulent about this.

>> in nominal gdp terms we're close to recession-like territory already. nominal gdp is growing at 4 which would be consistent with a recession at any time since 1960. unemployment rate is 7.8%. so it really -- i don't want to pass it off. i think it becomes somewhat semantic. i think people made their peace with the idea the economy will be slow for a long time. the most important concept e in finance is financial repression. the fed bought close to 8% of the net new issuance last year. if that continues it won't make much difference. i don't know if you have to keep dancing until the music stops but it's hard to stay out of the market. >> that seems to be the consensus tonight on the kudlow report. stephanie, thank you. jason, thank you.

now to the middle east for big news in the beleaguered regimes of syria and egypt. nothing but bad news. egyptian military says the government in cairo could fall soon. israel is blasting syria with two air strikes aimed at keeping weapons of mass destruction and missiles out of terrorist hands. that's a nasty bad story. we are obliged to follow it next up. officemax knows... ...tax time can be...well...taxing. so right now we'll give you... ...$10 off any turbo tax deluxe level software or higher! find thousands of big deals now... ...at officemax. we don't let frequent heartburn come between us and what we love. so if you're one of them people who gets heartburn and then treats day after day... block the acid with prilosec otc and don't get heartburn in the first place! [ male announcer ] one pilch 24 hours. zero heartburn.

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big news out of the middle east. on the syria/lebanon border a convoy of trips was attacked carrying shipments to hezbollah, the terrorist group. the morsy regime is apparently falling apart. a military takeover may be imminent. president obama continues to brag about u.s. involvement. he said on 60 minutes, quote, when it comes to egypt, i think had not been for the leadership we showed you might have seen a different outcome there. whoa. i want to get back to that. joined now by former reagan administration assistant defense secretary larry court and former ambassador and white house middle east adviser mark ginsburg. let me start with israel. do israelis have a choice but to bomb and truck convoys and worry about hezbollah getting surface to air missiles or getting chemical weapons? >> they had no choice. the gootd nd news is either the

syrian regime wants to get them out or hezbollah had been storing weapons in syria wanted to get them out because they are not quite sure that assad is going to last. no, i think this is very similar to what the israelis did in 2007 when syria started moving toward developing a nuclear capability. >> mark ginsburg i read in the paper one of the accounts said the israeli bombing is close to damascus. >> yeah. one of the issues here, larry, is that there are weapons of mass destruction that are seeping out of their storage depots and we have picked up intelligence reports over the last few months. this is certainly not the first where the israelis went on high alert the last few days because they were concerned that there had been indications that some of the weapons of mass destruction had been transferred into the hands of hezbollah. so that attack could have basically been aimed at destroying one of the supply

depots for the weapons were binary. >> larry, egypt may be falling apart before our eyes. the egyptian defense minister has said the military may have to take the situation over. it looks like president morsy lost control. it looks like the muslim brotherhood lost control. in fact, the whole thing looks like a mistake. i want to ask you, how close are we to a military regime in egypt? >> i don't think we're very close. what you're seeing is the beginnings of a democracy. morsy was elected. a lot of people are unhappy with some of his policies. they are trying to express their opposition. obviously if it was complete chaos the military might step in. we have leverage with them because of the military assistance we provide. i think this is more growing pains. this is not the first time this has happened. remember, morsy was very helpful to us in brokering the cease-fire between hamas and israel. we're going to have to li with

this for a while. you can't go from an autocracy like they had under mubarak to a functioning democracy right away. >> ambassador ginsberg there is civil unrest in all major egyptian cities, curfews aren't working. the muslim brotherhood is backing away. they don't want any part of the t riots in the streets. the military may have to take the place. the economy is in a shambles. are you as, i will say, optimistic or quescent as larry is on egypt? >> this is a place where we part company. i'm more dubious about the ability of the so-called democracy to essentially protect the rights of the minorities that have taken to the streets. i mean after all, there are cities on the suez canal where there is marshall law which declared independence from egypt. this is not growing pains of a democracy. this is an autocratic take over

of egypt even if it is from a government not inclined to protect the rights of the minorities or see a secular opponent participate in the government. the military is on the cusp of directly intervening in the country. i'm not -- i don't believe i hope larry is right. i'm less of the view that this is just growing pains. there is a threat that the state authority will collapse in the country. >> when will morsy flee? that's what i think will happen. he'll make a run for it or get run out of town. >> i don't think so. i will agree with you on one thing. unless they get the situation under control their economy will improse. that's the real problem. tourism is a big industry in egypt. nobody wants to go there until they geted down. that will create more problems.

but, you know, again, this is not the first time since morsy has been there. you may remember before the constitution was ratified he tried to push himself, give himself more power. then he had to back off. i don't know the outcome. we shouldn't be surprised that they are going through this. >> i will give you the last word. why is the u.s. government selling them f-16s now, tanks, foreign aid? shouldn't that be withheld? >> we should hold off to see what role the military will play and we have to see what will happen. >> thank you, gentlemen. that's it for this evening. thanks for watching. i'm larry kudlow. see you tomorrow night. ♪ let's go.

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